Unlike two years ago, Montana legislators won’t be facing complex decisions of how to shore up the finances of battered pension funds for state and local government employees and teachers.
Although a number of bills could be introduced, pensions don’t figure to be nearly as significant an issue facing the 2015 Legislature as they were two years ago. They were one of the most important issues confronting the 2013 Legislature.
The 2013 Legislature approved the steps recommended by Gov. Steve Bullock that have largely righted the pension funds financially. The funds faced huge potential shortfalls arising largely from the national recession of 2008-2009 that caused the value of their investments to plunge by about 25 percent.
The fixes included pumping tens of millions of dollars of ongoing coal tax revenue and other funds into the pensions and limiting what’s known as “spiking,” or employees getting promotions before retirement to boost their pensions. The bills also required employers and employees to increase their contributions to the funds.
Courts have temporarily blocked attempts in the 2013 bills to lower the annual guaranteed annual cost-of-living increases for retirees under the Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS).
Just as important, the pension investments have fared much better. The Montana Board of Investments reported that returns on PERS and TRS investment funds exceeded 17 percent in the year ending June 30. The pension funds anticipate a 7.75 percent annual rate of return. Investment gains or losses are “smoothed out” over several years to reduce volatility.
“The governor’s proposals last biennium to fix TRS and PERS have been successful,” said Dan Villa, Bullock’s budget director. “Overall, the system is fixed. We’re one of the first states in the nations to fix its pension system without passing the buck to the employees or raising taxes….
“We’re very pleased with the way it’s worked out. It’s good for Montana, good for our credit rating. It’s another reason why Montana is the most fiscally responsible state in the nation.”
Villa said both of the largest funds now amortize in less than 30 years, as required. But he added that the state is “still in for a few years of fluctuation over amortization within 30 years.”
The Teachers Retirement System has 18,300 active members throughout Montana and 14,349 people drawing retirement benefits.
“Two years ago, the (TRS) pension didn’t amortize in any time,” said TRS executive director Shawn Graham. “As of July 1, it amortizes in 28 years and is projected to be fully funded by 2042. All of this is attributable to the efforts of the 2013 Legislature, the governor and the TRS board.”
The Montana Public Employees Retirement System has 28,229 active members and 19,695 people drawing retirement benefits.
Dore Schwinden is director of the Montana Public Employee Retirement Administration, which administers pension funds, including PERS, the largest, and seven others.
“Certainly from my relatively new standpoint, this valuation was outstanding,” Schwinden said. “Certainly the reforms passed in the last session made a great deal of difference, combined with a really strong investment return.”
He said six MPERA plans, including PERS, are actuarially sound, amortizing in 30 years or less.
“I think they’re in very sound financial shape and another year or two of good investment returns will make a huge difference down the road,” Schwinden said.
Not amortizing, however, are the pensions of the game wardens and peace officers and that of the sheriffs.
Schwinden said PERA is working with the pension funds and budget office on the two that don’t amortize.
In 2013, the Legislature rejected Republican attempts to completely overhaul the pension plan. Legislators sought to terminate the current “defined benefit” public pension system for new employees and switch to a “defined contribution” system.
The “defined benefit” system that’s in place guarantees retirees a fixed monthly lifetime pension based on how long they worked and their average top salaries, regardless of how the state’s pension investments have fared. They also receive an inflationary increase annually.
A “defined contribution” system is like the 401(k) system common in the private sector. Employees and employers would contribute to the fund. When employees retire, they would leave with the sum of whatever money they have is in their fund—their portion, their employers’ share and the investment earnings. They would no longer be guaranteed a fixed a fixed monthly pension for life as is the case now.
House Majority Leader Keith Regier, R-Kalispell, who unsuccessfully tried to switch to a defined contribution pension system for new employees in 2013, has another proposal to generally revise pensions. He said it’s “a placeholder” at this stage, and wasn’t certain what he would do with it.
“What we did last session is we dumped a lot of money into the system,” he said.
Sen. Brian Hoven, R-Great Falls, has proposals for voter referendums to switch to hybrid retirement systems for new employees under the PERS and TRS systems.
Existing employees would remain under their defined benefit system plans.
“These pension plans for teachers and public employees are gold-plated,” Hoven said. “It used to be the pension plan was needed because the jobs were so poorly paid. Now they’re paid very well and paid comparable to the private sector.”
Borrowing an idea from former state Sen. Joe Balyeat, R-Bozeman, from several years ago, Hoven said new employees would contribute 8 percent of their salary to the fund, as would the government employer. They would be guaranteed a maximum of 8 percent or a minimum of 4 percent on their investment.
When someone retired, the pension funds would take the combined total money for that person, buy an annuity for the person “and the state would be off the hook.”
Hoven said he won’t pursue the referendums unless some interested party exists to raise money to help pass it in 2016.
“At this point, I haven’t found anyone,” he said.
Source: The Montana Standard